IRS Rules

• Internal Revenue Service rules allow you to invest in real estate through your IRA. According to the IRS, only three types of investments are prohibited. You cannot put money into collectible items like antiques or sports cards. You cannot put money into life insurance investments or into any deals that benefit you directly before retirement. As long as you do not put any money into either of these three categories, you can invest in anything you want, which includes real estate.
  
  

Self-Directed IRA

• Even if the IRS allows you to invest in almost anything, this does not necessarily mean that your IRA custodian will offer many options. It is up to your IRA custodian to determine what investments you can choose from. Many of them only offer stocks and bonds because they can make a commission on them when you buy. To get involved with real estate, you have to get a self-directed IRA, which is one that you manage and allows you to invest in real estate.
  
  

Managing the Property

• When you invest in real estate with your IRA funds for the purpose of renting property, you have to ensure that you manage the property correctly. You cannot mix your personal funds with your retirement funds when managing this rental property. For example, you have to pay for all of the real estate taxes, insurance and any other expenses with money from your retirement account or from the rent that the property generates.
  
  

Avoiding Self-Dealing

• During this process, you have to ensure that you do not engage in any self-dealing. If you are found guilty of self-dealing, you may have to forfeit the entire amount of money that you earned in the investment. For example, you cannot rent out the property to any friends or family members. You also cannot use the property for a vacation house for yourself or your family members. If you keep any of the rent money for yourself, this is also considered self-dealing.